A.M. Best Co. has affirmed the issuer credit rating of “bbb-” of Independence Holding Company (Independence Holding) [NYSE: IHC]. A.M. Best also has affirmed the financial strength rating of A- (Excellent) and ICRs of “a-” for Madison National Life Insurance Company, Inc. (MNL) (Madison, WI), Standard Security Life Insurance Company of New York (SSL) (New York, NY) and Independence American Insurance Company (Independence American) (New Castle, DE). The outlook for all ratings has been revised to negative from stable.

Independence Holding has reported net realized losses as a result of the severe downturn in invested asset values, currently endemic in the world financial markets. Additionally, the organization has reported other than temporary impairments (OTTI) due to lower market values being sustained below book value for more than six months. Although not required, Independence Holding has opted for and has taken GAAP and statutory invested asset write-downs that were not equal. Medical stop-loss, Independence Holding’s primary insurance product, has experienced downward pricing pressures over the past three years, commonly known as a “soft market,” which have suppressed underwriting performance.

In order to temper the impact of these developments, Independence Holding has adopted a number of more prudent strategies. The organization has tightened its control over distribution, has limited revenue growth and has been successful in improving underwriting income and limiting investment exposure after divesting Independence Holding’s portfolio of all publicly-traded common stocks.

Taken together, these unfavorable financial results are expected to have a negative impact on Independence Holding’s capital position for the period ended December 31, 2008. While its capital is currently adequate, A.M. Best is concerned that if additional material losses are incurred in its investment portfolio, Independence Holding’s capital may not be adequate for its current ratings. A.M. Best will continue to monitor the organization’s performance on a monthly basis as its leadership works to improve overall capital strength. Currently, operating cash-flows are more than adequate to pay claim obligations. There also are a number of securities that will be redeemed in the near term, which together with the existing cash and short-term investments currently on hand, will provide the organization with all the funds that it needs to execute its business strategy.

For Best’s Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.
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David Mitchell, 908-439-2200, ext. 5556
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Sally Rosen, 908-439-2200, ext. 5280
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or
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Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
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Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com